Risk and Commodity Futures Trading.
The Agricultural Futures Exchange of Thailand (The Agricultural Futures Exchange of Thailand; AFET) or when the Fed was open to trading futures. (Such as transactions, futures trading through Exchange or called transaction Futures Trading occurs for the first time in India) as at 28 May 2547 by the first type that provides trading, the stock rubber. The day 3 (Ribbed Smoked Sheet No. 3; RSS3) where the primary purpose is as a tool for establishing AFET entrepreneurs or farmers to manage price risk of commodities.
Before diving into the details about trading. I want to talk about the risks, or the risk that the Risk beforehand that it is there. Why the government to set up a AFET main function is to manage the price risk of commodities.
What is risk.
But before talking about the risk (Risk) The reader may think about these examples.
First. Before leaving home. One student at a sky coverings. This student was thought to bring an umbrella out with you. If you bring an umbrella along, it will be the burden of the bus because the bus node might fall bus was injured. And if it did not rain this student would think. "We did not take an umbrella with me," but if rain. This boy will think in his heart. "Fortunately, I took an umbrella with" readers think this student decided to bring an umbrella with you or not.
Two. Rubber processing plant operators to decide whether to repair old or buy new equipment. If the rubber sheet with good price and high demand. Buying new is worth more than Because the old machine to the repair and still not fold it new. If purchased new machinery to the tire price in that year slump Households experiencing financial difficulties, you may think that this operator will decide to repair it or buy a new machine.
Three. Farmers decided to plant rice cost $ 5,000 per wagon by a farmer must decide whether to forward the mill has offered to buy rice from farmers directly 6,000 per wagon or wait gambled until the harvest is complete. Then sold in the market in that period. If you are a farmer, you would rice.
Events (Events) above is related to the various decisions everyday on outcomes (Outcome) of events that are inherently uncertain. (Uncertainty), which may pose a risk to anyone involved. To consider the alternative possibility that it is the duty of the executive decision-makers. Factors to consider alternatives such as (1) the level of risk acceptable results in each alternative (2) capable of siphoning the risk to another party, and (3) any information that can help in calculating the probability of the outcome in each alternative.
Risks different from uncertainty, however.
Risk (Risk) of uncertainty. (Uncertainty) any event of uncertainty (Uncertain Events) refers to an event that we do not know exactly. As a result, it is in the form that is the result of an event that may have one or more than one form.
However, for a person at risk is uncertain, but the uncertainty is not necessarily a risk. (Compare with Football is a spherical object, but the object is not necessarily spherical ball), which is actually the risk is uncertainty that impact the welfare or well-being. (Well-Beings) of any person in the risk and uncertainties, such as a football match between Manchester United - Liverpool. Is certainly not one to gamble if Mr A the result is vulnerable to pockets of Mr. A, but if I was a football game and how much I admire. During the football. Manchester United - Liverpool. It just is certainly not an ordinary one only.
To realize or consider the risk of each event. Depends on the attitude of the individual. Normally, factors such as access experience or relevant knowledge of the person that will help to develop the ability to analyze the uncertainty and to help in the decision making process under uncertainty (Decisions. under Uncertainty) of the examples I mentioned it. Students who decide to go to school or not to carry an umbrella. May not believe that the rain did not bring an umbrella along. But if the rain is falling in the day. Rain may experience a change of attitude and approach to predict rainfall. This may help the child to guess a more accurate in the future.
In summary, the results of the event that more than one-unpredictable results can occur. If the results of the eventuality (Uncertain Events) that affect the well-being or the well-being of those involved. Events such as event risk (Risky Events).
Why entrepreneurs must be aware of the risks.
Usually in the business. Farmers or entrepreneurs to take into account two factors.
First. Earnings (Profit).
Two. Liquidity (Liquidity).
Normally, the farmers get the profit can be calculated from Revenues less costs.
Profit (Profit) = Income (Revenue) - Cost (Costs).
Income (Revenue) of the farmers can be calculated from the output (Output) multiplied by (Price).
Income (Revenue) = Price (Price) x Output (Output).
The liquidity means. The farmers have money to spend when necessary, such as the payment of interest on the loan or have the money to pay for utilities. When due to be paid.
Sample farmers producing one.
Productivity is expected to be 20 tons.
Paddy prices to predicted 4,400 / ton.
Cost of rice to pay 50,000 baht
Farm income is expected to be 20 x 4,400 = 88,000 Baht
Profits to farmers is expected to be 88,000 to 50,000 = 38,000 Baht
It can be seen that the farmers had to get it. Can be changed if there is a change of variables as follows.
First. Productivity that can produce such a change to the burden of drought, farmers can produce less than it should be.
Two. Agricultural prices (Price) changes as commodity prices decline.
The nature of the business is related to Agriculture. Farmers or Operators face two types of risks, which include the first category. Risk Production (Production Risk) and the second type is the risk (Price Risk).
Risk or the risk of production (Production Risk) arises from the uncertainty of various factors that it involves processes such as climate, natural hazards and other uncertainties that affect productivity. For example, if farmers farmers facing drought. Yield may be reduced from 20 tonnes to 18 tonnes, a decrease in the yield has a direct impact on revenue and profit that farmers will receive. Income will be reduced to £ 79,200 (18 x 4,400) and earnings will be reduced to £ 29,200 (79,200 to 50,000).
In the second type of risk or price risk (Price Risk) arises from the volatility of commodity prices, ie prices are rising - quickly. So that farmers can not be accurately pre-production planning. If the price of rice has fluctuated between 2,000 to 6,000 baht per ton, and in the productivity of farmers to market grain prices are 3,500 / tonne, which is lower than the predicted 900 assumed that farmers produce as expected is. 20 tons, so the income will be reduced to £ 70,000 (70,000 x 3,500), and the profits will be reduced to just $ 20,000 (70,000 - 50,000).
Be seen as a risk to production or price risk. Risk are able to make profits or income of farmers is declining. It is inevitable that impact liquidity or financial position of the farmers.
Tool for risk management.
The tools to manage risk. Can help prevent severe illiquidity of entrepreneurs. Example of the output and declining prices which farmers make a loss. I make no money left to buy food to eat or enough. No money to pay debts as loans.
Risk production is noticeable in the agricultural sector on a natural disaster or drought, which is an example of a tool to manage the production, including insurance products, agricultural crops or Crop Insurance as a risk that can be observed. of movement up and down in commodity prices. We know that there is risk in any category. Examples of price risk management tools is the key process in the futures trading (Futures Trading) in AFET, as will be discussed in future.
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